Swiber, a once upon a time a stock darling in the Oil and Gas (O&G) industry filed for liquidation on early Thursday morning, inflicting shocks to the industry and the stock market as a whole. For some time, it has been showing signs of distress in debt re-payment. Surely, the indefinite cancellation of the $710m South African field development contract that it has been banking on to operate as an on-going concern and its inability to sell $200m preference shares to a private equity firm AMTC, had severed the lifeline of the company.
Based on the on the latest financial statement of Q1 2016, Swiber has a cash holding of about $130m, and a total debt of more than $1 billion. Of the total debts, $464.6m are secured, of which $264.6m is to be paid within a year. The rest of the debts are unsecured, of which $225.1m is to be paid within a year. In aggregate there is a shortfall of at least $870m.
The financial statement showed huge receivable items of $741m, of which $525m is trade-related and property, plant and equipment of $677.7m However, stakeholders should not get carried away as a huge percentage of these assets may not be recoverable to pay off the debts sufficiently. First of all, the trade receivables could be made up of the progressive payments that are due or equipments that had been delivered but yet to be paid. In a situation when the industry is weak, a huge part of the debts could be doubtful or even debts that could have gone bad that have yet to be written off. To be fair, it is likely that company has been watchful of the receivables, but the weak operating business environment did not permit it to act too aggressively. The irony is that when a company is in a dire state, it is even harder for it to recover its debts. The debt recovery process is likely to take years to settle and a huge percentage off from the receivables.
The value in property, plant and equipment is equally grim. As an O&G contractor, the bulk of these assets are likely to be trade related comprising mainly engineering equipments, which are very specific in nature. The potential customers are likely to be players in the up-stream or downstream of the value chain or even its competitors in the industry. With a relatively weak outlook in the sector, holding inactive assets may be more a liability than an asset. Therefore, it is unlikely to fetch a good price, perhaps only a fraction of the book value can be recovered.
The financial statement also showed $141m and $28.5m investment in associates and JV companies. Again, these are traded related companies eg. Allianz, whose share price had already been battered by 40% following the liquidation announcement. Even if the shares are sold in quick-time, it is likely that only a fraction of the value can be actually recovered.
On a separate note, DBS has already announced that it has $700m exposure to Swiber. Even as a secured lender, DBS estimated that it could only recovered about 50% of the amount owed. Therefore, it is likely end-scenario is that bond-holders take a haircut cut and, perhaps, nothing for the shareholders.
Disclaimer – The above view is the personal opinion of the author and does not constitute an advice to buy or sell the mentioned security or any securities related to the company. The author shall not be held liable for any losses if reader(s) act to buy or sell the mentioned securities.
Brennen has been investing in the stock market for 26 years. He trains occasionally and is a managing partner for BP Wealth Learning Centre. He is also the author of the book – “Building Wealth Together Through Stocks” which is available in both soft and hardcopy.